Economic Surprise Index May Be Leading Indicator (Chart)
November 6, 2013 10:21 am
This is something that we have seen before. Markets forget about the underlying economic conditions (for a while) and trade to their own beat. Reality will usually hit soon after there is a large enough divergence between the slope of the market and the surprise index.
The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance been beating consensus.
The indices are calculated daily in a rolling three-month window.The weights of economic indicators are derived from relative high-frequency spot FX impacts of 1 standard deviation data surprises. The indices also employ a time decay function to replicate the limited memory of markets.